Payday loans cap

[bu06nne]

I was considering getting into this market, but now i've seen this:

http://www.bbc.co.uk/news/business-30000472

I presume the CPL price will decline dramatically.

Anyone operate in this market? Thoughts?

 

[ian]

I believe Monkey works in the questionable world of pay day lenders.

It's a step in the right direction, but certainly isn't the only area of finance that needs an overhaul!

.

 

[Retired_Member38]

I'm always happy to have a sensible discussion about the niche, though I feel with it being framed as 'corrupt' in the very first reply, that isn't the path we're going down :lol:

I don't believe the price per lead will decline rapidly. There are very few people who end up paying more than double what they borrowed so that part is not going to be particularly relevant.

If you're providing very low quality leads (shit credit rating, very few lenders what to risk them already) then the cut in interest that can be charged to them may mean they're no longer viable to lend to at all. So these people will go to illegal lenders and you won't be able to sell the leads to legitimate lenders at all. But if your leads are high quality I expect it to be business as normal.

Take one of the more competitive lenders, say Bonga Loans. Borrow £200 for 30 days and they'll currently charge you £50 interest. With the cap rate they'll be able to charge you £48 in interest.

But like I say its going to come down to lead quality.

 

[bonusmedia]

Don't think he said you were corrupt, 'questionable' is pretty obvious, if it wasn't questionable there wouldn't be so much media outrage and government focus on tighter regulation.

I'm not in the industry but my laymans impression is it will have quite a bit more impact than that.

The FT suggests it will be a wipeout: http://www.ft.com/cms/s/0/11465030-4af7-11e4-b1be-00144feab7de.html#axzz3ImhIGV1g.

The FCA suggests 99% of firms will close and between 1 and 4 firms will be left standing, with vastly reduced profits.

APRs are going to come down from sometimes 5000%+ to 300% max for a start. The dubious debt collection practice of taking money straight out of accounts based on fine print on sign up is also ending. Levies will be payable to the FCA.

Wonga wrote off £220 million they should never have issued in the first place. They refunded another £20 million after the fake lawyer letter scandal. Their profits have halved in the last year even before the new rules.

There is some talk that up to 20% of ALL payday loans may end up being compensated - it might well become as big a misselling scandal as PPI and bank charges etc.

 

[Retired_Member38]

That FT article is a load of junk.

From a making money online point of view there is no relevance to this '400 lenders' talk either. There are maybe 30 or so lenders operating online. I don't think any more than 5 of them will close. The market will still be competitive, leads will still be bought and sold for a lot of money.

Lenders mostly won't close, they'll tighten up who they lend to. This will leave a significant group of people looking for alternative sources of credit... in reality the major winner is current illegal lenders.

 

[Retired_Member42]

Lots of people are put off payday lending because of the potentially high interest rates and charges. The caps could actually encourage more people to apply than ever before if people see it as safer / more closely regulated these days.

 

[Brassneck]

Don't think he said you were corrupt, 'questionable' is pretty obvious, if it wasn't questionable there wouldn't be so much media outrage and government focus on tighter regulation.

Ian just edited out the word corrupt. None of the reporting on this mentions the business as being corrupt so not sure why he felt the need to use that word .....

Personally glad to see the industry coming under scrutiny.

 

[bonusmedia]

Well obviously you know the business better than I do. The FT is generally pretty well researched though and since the FCA controls the market it would seem likely they know what they're on about. I suppose we'll see soon enough.

Perhaps illegal lenders may benefit, but it isn't a case where people will definitely go to a shark if they can't get a Wonga loan. Wonga thrived on promoting the idea of quick, easy money. people were getting loans they couldn't afford for frivolous crap like nights out. The majority of that will just stop, no-one goes to a loanshark to fund a night on the piss.

Wonga themselves have said they intend to sacrifice a large portion of their profits to become a 'responsible' lender

 

[Retired_Member38]

Look at some of the bigger lenders now and how much they charge, then compare it to the capped rates. Its pretty obvious that none of them are actually inside those charge limits currently... but they're not a million miles out either.

They are clearly going to need to tighten their lending criteria but there is nothing to suggest they're going to have to go out of business. They're mostly operating from 1 office and can easily downsize to suit if required. We're not talking 300 high street locations and they all suddenly become unviable.

The lenders will also be able to get around the lowered charges by refusing to lend for shorter periods. Perhaps you wanted to borrow £100 over 7 days? Thats £5.60 in interest. The lender might need to make £10 per customer otherwise they won't lend... so they can just say you're welcome to £100 but over 14 days only and that'll be £11 in interest. Realistically the lending risk is the same... you're either going to pay it back or not. 7 days extra won't change that.

Drugs addicts and junkies aren't going to just stop lending... they're going to take cash from whoever will give them it. Whether thats Brighthouse, Wonga, or Dave down the street who'll break your legs if you don't pay.

 

[ian]

Ian just edited out the word corrupt.

I edited my post 12 minutes before the next reply, so unless Monkey had already started to compile a response, it shouldn't have been referred to. Corrupt was a strong word (which is why I changed it), but still feel this industry has been neglected of any ethical responsibility for quite some time, but then, that was probably to allow those in charge to line their pockets first.

Wonga (and others) can claim they are putting money aside to become 'responsible' lenders, but that still doesn't take away from the fact their profit comes from ill gotten gains and exploitation of the weak and vulnerable!

Personal opinion based on what I've gleaned; not involved in the finance sector so can't substantiate my view more than I have.

 

[bonusmedia]

I'm under the impression they're going to be stopped from quoting a reasonable interest rate and then making their money by adding a 'lending fee'

Even Dave down the street knows not to lend to junkies, it's not exactly a big target market.

Again I reckon most of the folks who were perhaps a bit naieve and tempted by the 'quick easy money for stuff you don't need' ads and the friendly brand would never dream of using an illegal lender.

 

[Skinner]

Dave down the street lends to junkies because he needs someone to steal for him, he Dave probably does lend to some junkies.

Dave down the street also holds the junkies family to account, so again he probably does lend.

Even Dave down the street knows not to lend to junkies, it's not exactly a big target market.

Its my understanding, we're moving to logbook loans more so than payday now, same deal, same crazy interest, but based on your car. I'm not sure the rules would apply or not, since one is payday and one is logbook and thats a huge difference

 

[bonusmedia]

Guessing you havent got much experience of junkies - they don't care about family.

Logbook loans have been around as long as payday loans

 

[Skinner]

Which is exactly why Dave will lend to them, Dave accepts all funding sources.

I didn't say log book loans were new, I just said lots of people who were in pay day loans, are talking about moving to log book loans for a second bite as one put it.

Not my niche, so I don't know if this cap applies to them or not, but I'm guessing based on precise wording which usually accompanies these things, it applies only to pay day not to all others too.

 

[Retired_Member38]

Log Book Loans is not a niche I'd waste any money getting into it.

The full thing is completely unfair and its going to be stamped down on. Person A takes out a log book loan then sells the car to B who has no possible way to actually check. Then he ends up with the bailiffs removing his car to cover A's debt...

 

[bonusmedia]

Log Book Loans is not a niche I'd waste any money getting into it.

The full thing is completely unfair and its going to be stamped down on. Person A takes out a log book loan then sells the car to B who has no possible way to actually check. Then he ends up with the bailiffs removing his car to cover A's debt...

If person B wants to buy a car without a logbook he's a fool.

 

[Retired_Member38]

If person B wants to buy a car without a logbook he's a fool.

Being an idiot or trusting someone isn't a crime... yet the penalty is potentially losing the only way you have to get to work or your kids to school. Its horribly unfair.

Plus you can easily phone the DVLA and get a new log book sent out... so even the logbook in your hand doesn't mean there isn't credit secured against the vehicle.

For 'log book loans' to have any future one of two things need to happen. Either the debt needs to be no longer secured against the vehicle when it legitimately changes hands (sold for market value, not just passed to someone else in that household for free), or there needs to be a checkable central registrar which you can look at before buying. It would be easy to do as the seller themselves could phone the number / visit the website with the buyer watching, so no data protection issues etc.

If the debt dies (or at least becomes unlinked from the car title) at the point of sale... then expect many of the lenders to exit the niche.


Realistically if you want to get into a lending niche I would say guarantor loans have far more potential

 

[martin-s]

Don't car loans appear on an HPI check?

 

[Retired_Member38]

Don't car loans appear on an HPI check?

If you financed the car originally that will appear on an HPI check. If you take a finance cleared car and secure a logbook loan against it, it won't show up. Which is rather ridiculous, but thats the way it is.

I'd like it to see it changed so that if a finance company doesn't register their interest in a car in this way then the debt isn't enforceable.

If they register it and you don't check then tough luck... you effectively bought stolen goods. But if they don't register it in the first place... how are you possibly meant to check ?

 

[bonusmedia]

Actually there is a central register - if you run a HPI check a logbook loan will show up.

Buying a car without a logbook is very dodgy - it suggests you know there is something wrong. The first thing anyone buying legitimate does is send off the slip to re-register - what would you do otherwise?

I'm not defending it, it's not a nice industry, but at least there is an asset to lend against